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Looking for the bottom? Real estate speculators are establishing the bottom-dollar price for lender-owned homes in Phoenix

This is my column for this week from the Arizona Republic (permanent link).

 
Looking for the bottom? Real estate speculators are establishing the bottom-dollar price for lender-owned homes in Phoenix

If you’re looking for the bottom of the real estate market in Phoenix, chances are it’s right up the block. It’s that house with the jungle of overgrown weeds in front.

It used to be for sale. Then it was a short sale. By now it’s lender-owned. A year ago it might have been listed for $250,000. Now the price has been slashed to $120,000 — maybe less.

That’s a sad story, particularly if you knew the owners. And now, as you watch the parade of investors checking it out, you might feel a certain anger toward them.

If so, your anger is misdirected. Between syrupy books and movies and high-strung high-school-teachers, we have been indoctrinated to despise speculators. But the truth is, speculators are the garbage collectors of capitalism. They come in and clean up messes they did not create, returning productive value to underperforming assets.

It you’re looking for a villain in these stories, look to the borrower, to the lender or just to the vicissitudes of life. But it is the speculators who are going to bring the real estate market back to a viable state.

How? By establishing the bottom-dollar price.

What is your home really worth right now? It’s worth as much as the lowest-price lender-owned comparable plus the cost of returning that home to turn-key condition plus a small convenience premium. In other words, if the lender-owned house sells for $120,000, and if it will take $10,000 to make it as nice as your home, then your home is worth $135,000 — $140,000 at most.

And if you’re not willing to sell you home for that price? Get it off the market right now. It will not sell for more, but the surplus of over-priced inventory is a false signal to buyers that the market has not found its bottom.

If you must sell into this market, you’ll sell at the market price. If you can afford to wait, you will almost certainly do better after the market has turned.

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  • 13 comments

    13 Comments so far

    1. Dave Barnes May 31st, 2008 9:50 am

      Trenchant commentary.

    2. Allen Butler May 31st, 2008 11:47 am

      Brilliant. One of your best. Clear, concise, to the point. Not willing to compete with REOs? Get outta the way!

    3. Bill Lyons May 31st, 2008 1:19 pm

      Great post

    4. Craig Tone May 31st, 2008 4:58 pm

      I guess I’m one of those speculators. I was the buyer on seven contracts in the past seven days. And that means I’m putting my money where your post is.

      Great post Greg!

    5. Barry Cunningham May 31st, 2008 5:28 pm

      This is what I have been writing about (and doing) for 6 months now. I guess now it’s become ok to talk about and is being accepted by the masses.

      Too many Realtors to this day resist the obvious. They lament that there are no buyers out there while there are PLENTY of buyers out there.

      There just isn’t a buyer for the crap that they are selling.

      Throw the BS CMA’s out the window and learn how to proper;y value a property and you’ll have one of two options presented to you:

      a. A seller who can’t deal with reality
      or
      b. a sale on a properly priced listing.

      For too long I have read too many posts telling agents to go out and get the listing and then sit back and wait to get paid.

      How’s that working out in this market!

      We held a soft opening launch to our buyer oriented blog and we are getting REAL leads from qualified buyers from all over the WORLD.

      Real estate agents do need to understand how this market is now working.

    6. Doug Quance May 31st, 2008 7:44 pm

      This is exactly what I’ve been telling sellers for the last two years…

      If you can’t sell your home, just look down the street.

      It’s tough medicine – but what you’re saying is the truth, Greg.

      I spent yesterday doing searches for in-town foreclosure condos… and today I went out to show them – and that market segment seems to be firming up here in Atlanta. Not as many killer deals as a few months ago.

      Of course, all buyers in today’s market are speculators of one sort or another.

    7. Greg Swann May 31st, 2008 8:09 pm

      > Of course, all buyers in today’s market are speculators of one sort or another.

      We put a listing under contract yesterday. (Yeehaw!) The seller was grumbling a little about what they had to give — not that bad, under the circumstances. I said, “You’ll be doing exactly the same thing when you’re buying.” He said: “Oh, no. I’ll be much worse!” The most thorough-going seller we’ve ever had — he was doing touch-up painting today — but it’s always more fun to do the goring than to be the ox that’s gored.

    8. [...] However, once in a while I find a gem that moves me.  I recently read a blog about Real Estate Speculators Establishing Bottom-dollar Price for Lender-Owned Homes in Phoenix.  That’s not even the whole post [...]

    9. Ned Carey June 1st, 2008 9:14 pm

      I don’t think it’s speculators buying houses now. It value investors. It was speculators that frove prices up.

      Personally I like the term vulture. I am proud to be a vulture for the very reasons you mention.

    10. Ideal4Investors June 2nd, 2008 9:00 am

      I don’t understand why someone would put their house on the market right now if they don’t have to sell. They should do us all a favor and pull it off and wait a while. Things will recover in a few years. In the mean time, let the lenders sort this all out with first time buyers and experienced investors. The Invisible Hand is at work folks. It works every time.

      I linked to this post http://idealinvestment.blogspot.com/2008/06/speculators-are-establishing-housing.html

    11. Sam Chapman June 2nd, 2008 1:11 pm

      I have a feeling we will see the same in other markets as well. I like that homes are selling more quickly and in greater numbers in markets lie Phoenix as finally sellers will be able to relocate to other areas. My only fear is that with less from the sale, they will spend less in other markets. What will this do to prices in otherwise healthy markets?

    12. [...] Looking for the bottom? Real estate speculators are establishing the bottom-dollar price for lender-… [...]

    13. Sabrina June 2nd, 2008 8:01 pm

      Markets always need buyers, so whoever the buyers are, I’m glad they are in the real estate market. It’s not easy to keep cash ready for times such as these, so these people should be rewarded for having the cash available to buy up these properties at a value.